Department of Labor: 95990009

8/14/2019 Department of Labor: 95990009

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U.S. Department of Labor Administrative Review Board200 Constitution Avenue, N.W.Washington, DC. 20210

In the Matter of :

STATE OF TEXAS DEPARTMENTOF COMMERCE,

Complainant,

ARB CASE NO. 963.28

ALJ CASE N O . 94JTP-24)

DATE: DE C I I I 9 9 6and

MIDDLE RIO GIUNDE DEVELOPMENTCOUNCIL,

V.

Intervener andParty-in-Interest,

UNITED STATES DEPARTMENT OF LABOR,

Respondent.

BEFORE: THE ADMINISTRATIVE REVIEW B O A O

FINAL DECISION AND ORDER

This case arises under the Job Training Partnership Act of 1982, as amended (JTPAor the Act), 29 U.S.C. $0 1501-1791 (1988),2and the regulations issued thereunder at 20

I On April 17. 1996, a Secretarys Order was signed delegating jurisdiction to issue finalagency decisions under. irzzer alla, t he Job Training Partnership Act of 1982, as amended, 29 U.S.C.$5 1501-1791 (1988 and Supp. IV 1992), and the implementing regulations at 20 C.F.R. Part 627,to the newly created Administrative Review Board. 61 Fed. Reg. 19978 (May 3, 1996). SecretarysOrder 2-96 contains a comprehensive list of the statutes, executive order and regulations under whichthe Board now issues final agency decisions.

7:; This case involves an audit for grant expenditures during the period July 1. 1989 through

(continued.. .)


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2.

C.F.R. Parts 626-638 (1992). Following an-audit and related procedures, the Departmentof Labor (DOL) Grant Officer issued a Final Determination, concluding tbat $822,257 of

JTPA grant funds expended by the Texas Department of Commerce (TDOC or the State)during the program years 1989 through 1991 must be disallowed. TDOC requested ahearing before an Administrative Law Judge (ALJ) to contest the determination of the GrantOfficer. See 29 U.S.C. 0 1576(a) (1988 and Supp. IV 1992); 20 C.F.R. 8 636.10 (1994).On April 30, 1996, the ALJ issued the Recommended Decision and Order (R. D. and 0.)in this case, which concluded that the disallowance determinations rendered by the GrantOffker should be reversed. Based on the Grant Officers Statement of Exceptions, thisBoard asserted jurisdiction on June 14, 1996. See 29 USC. 5 1576(b) (1988). On the basisprovided herein, we disagree with the recommended disposition of the ALJ regarding thedisallowances delineated in Finding 3 of the Final Determination and disagree in part withthe ALJs recommended disposition of the disallowances delineated in Finding 2 of the Final

Determination.

BACKGROUND

The Act and implementing regulations provide detailed guidelines for the expenditureof JTPA funds by grantees and subgrantees. 29 U.S.C. $ 1518 (1988); 20 C.F.R. $0629.37-629.39; see generally Mississippi Dep t of Economic and Community Development v. United Stat es Dep t of Labor, 90 F.3d 110 (5th Cir. 1996)(affirming Secys determinationregarding misspent JTPA funds)./ In the interest of ensuring compliance with suchguidelines, the Act and regulations also provide for oversight of JTPA expenditures by the

(. . . continued)June 30, 1992. Administrative file at 14, 42. Statutory guidelines for allowable expenditures underthe Act that are applicable to this case are therefore those in effect prior to the amendments to t heAct of September 7, 1992, Pub. L. No. 102-367, Title I, Subtitle B, Q 117, 106 Stat. 1035.References to the regulations are for those in effect during the period covered by the audit exceptfor regulations concerning procedures pertinent to the hearing before the Administrative Law Judge,which are accordingly noted.

1 We note the following provisions concerning limitations on expenditures of JTPA grant fundsthat are pertinent to the discussion to follow. Section 629.38(a) provides these three categories of

expenditures that are allowable under Section 108 of the Act: training, administration and participantsupport. 20 C.F.R. $ 629.38(a); see 29 U.S.C. 5 1518. Expenditures under the JTPA must notonly be allowable under the Act but must also be properly allocated under one of the foregoingcategories. 20 C.F.R. 5 629.38(a); see OMB Circular No. A-87, 60 Fed. Reg. 26484, 26491 (May17. 1995). Section 629.39 of the regulations implements the Section 108(a), (b) limits on thepercentage of funds that may be expended under the administration category. 20 C.F.R. b 629.39;SCE 29 U.S.C. 4 1518(a), (b). Employment generating activities are allowable under the Act, 29U.S.C. 3 1604(19), but employment generating activities per se, see discussion infra at II., may becharged only to the administration costs category, see Order at 7-9 and authorities cited therein.


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Labor Secretary.~29 U.S.C. $1573; 20 C.F.R. 9 629.43. The fiscal controls provided underthe Act include an audit and appeals process. 29 U.S.C. $0 1574 - 1576; see 20 C.F.R.

$0 629.42, 629.44. Audits, which are provided for under Sections 164 and 165 of the Act,29 U.S.C. $0 1574, 1575, are conducted by the Office of the Inspector General for theDOL (OIG). See 20 C.F.R. 8 629.42. Following receipt of audit reports from the OIG,the Grant Officer, who serves within the DOL Employment and Training Administration(ETA), provides a copy of the auditors report to the grantee for comments; subsequently,the Grant Officer evaluates the audit report and the grantees responses and issues an InitialDetermination to the grantee. 20 C.F.R. 0 629.54(d). An informal resolution processfollows, during which the grantee is provided the opportunity to provide additionalinformation pertinent to the issues in dispute. Id. The Final Determination is then issuedby the Grant Officer, and, if the grantee wishes to challenge that determination, the granteemay request a hearing before an ALJ. 29 U.S.C. 5 1576; 20 C.F.R. 9 636.10.

Following an audit of JTPA expenditures for the grant years 1989-1991 by the granteeTDOC, a final report was issued by the OIG on March 23, 1993. GX 1 at 12, 31, 151-77g;see R. D. and 0. at 2. On March 3 1, 1993, the audit report was forwarded to TDOC withinstructions to resolve questions arising within the audit with the Middle Rio GrandeDevelopment Council (MRGDC), an agency that administered JTPA grants received by theState. GX 1 at 12, 31, 147-48; see R. D. and 0. at 2. On September 30, 1993, the Statesresolution report was submitted to ETA. GX 1 at 12, 31, 42-146; see R. D. and 0. at 2.The Grant Officer concluded that TDOCs resolution of the matter was not satisfactory and,on December 15, 1993, t he Grant Officer issued an Initial Determination which concludedthat $885,525 in JTPA funds must be disallowed. GX 1 at 31-39; see R. D. and 0. at 2-3.Following submission of further documentation by TDOC, the Grant Officer issued a FinalDetermination on March 14, 1994, which allowed $63,268 of the previously questionedfunds and disallowed $822,257 in funds. GX 1 at 14-28; see R. D. and 0. at 3. Consistentwith Section 164(d) of the Act, 29 U.S.C. Q1574(d), the Grant Officer directed TDOC torepay DOL, from non-federal funds. GX 1 at 14; see R. D. and 0. at 3.

TDOC requested a hearing before an administrative law judge, and MRGDC, as asubgrantee, was allowed to intervene. GX 1 at 1-11; R. D. and 0. at 3; see 29 C.F. R. 818.10 (1994); c$ C~ury of Los Angeles v. United States Dept of Labor, 891 F.2d 1390 (9thCir. 1989)(reversingALJs conclusion that subrecipient under JTPA could not intervenepursuant to 29 C.F.R. 5 18.10(b) in hearing requested by state). In response to a motion forpartial summary decision filed by the Grant Officer and motions for summary decision andprotective order filed by MRGDC, the ALJ issued an Order Granting in Part the Motion forPartial Summary Decision, Denying Motion for Summary Decision, and Granting in Part the

i For references to the exhibits of record, we will follow the ALJs example. R. D. and 0.at 2 n.2. and abbreviate as follows: U.S. government exhibit, GX; Complainant/TDOCexhibit, CX;Intervenor/MRGDC exhibit. IX. For references to the hearing transcript, we will use HT.


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Motion for Protective Order (Order) on November 3 ; 1995. _ Following a formal- hearingon Novembtx 27-28, 1995, the recommended decision was issued, on April 30, 1996.

I.

DISCUSSION

Costs disallowed by the Grant Officer under Finding 2 of the FinalDetermination

At issue before the AU under Finding 2 were costs that the Grant Officer haddisallowed as expenditures for economic development activities (EDA) rather thanemployment generating activities (EGA), as contended by TDOC and MRGDC. R. D. and0. at 6; see GX 1 at 19-21.- EDA are broad-based efforts that are not chargeable to grantiknds under the Act, whereas EGA costs are allowed under Section 204(19)of the Act, 29

U.S.C. 6 1604( 19), if the grantee demonstrates that the activity directly resulted in theplacement of JTPA eligible individuals and participants into jobs created by thesecontracts. a/ GX 1 at 20; see R. D. and 0. at 6-7 (citing JTPA Conf. Rep. No. 97-889,Sept. 28, 1982 and 20 C.F.R. $ 629.37(a)). In challenging the ALJs reversal of thedisallowances under Finding 2, the Grant Officer urges that the ALJ erred in renderingfactual findings that are unsupported by the record. Gr. Ofcr. InitialBrief at 19-22.

First, the Grant Officer contends that the ALJ erroneously reversed the GrantOfficers disallowance of $6,925 for three consultant contracts (the BatesIBalderasAJrbinacontracts), which the Grant Officer had determined to be directed toward assisting businessventures and employers rather than intended to generate jobs for JTPA-eligible individuals.

HI at 220-23;see GX 1 at 19-21, 161-62. In reversing this conclusion and finding that thecosts were for EGA, the ALJ found that the consultants who were paid under the threecontracts had been utilized to help establish businesses that had originated in the MRGDCbusiness incubator center, and that these businesses, in turn, provided jobs for JTPAparticipants and JTPA eligible individuals. R. D. and 0. at 8-9. The Grant Officerchallenges this conclusion as unsupported by the record because the evidence does notestablish that MRGDC was actually operating an incubator center. Gr. Ofcr. Initial Brief at 19-21. Although the ALJ may have misinterpreted the evidence of record regarding theexistence of such a center, any such error is not material to his analysis regarding the EGA

31Of the $42,296 in costs that were at issue before the ALJ under Finding 2, the Grant Officerhas challenged the ALJs findings regarding only $17,869. See Gr. Ofcr. Initial Brief at 19-23;

R. D. and 0. at 6-13. These costs are at issue under both Finding 2 and Finding 3. See Gr. Ofcr.Initial Brief at 5 n.2; R. D. and 0. at 15 n. 12; GX 1 at 21.

- As discussed injh, EGA costs are allocable under the category of administrative costs andare therefore subject to me fifteen percent cap on administrative costs imposed under Section 108(a),(b) of the Act, 29 U.S.C. 5 1518(a),(b). Order at 19 (citing Williams deposition at 42-46); see 29C.F.R. Q 629.39(a)(l).


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nature of the Baks/Balde&Urbinanacontractsand is therefore harmless. The testimony of the MRGDC Deputy Executive Director does not indicate that an incubator center, within

the meaning provided by the Grant Officer, had been established. T. 506-07, 554-56.Nonetheless, the rationale relied on by the ALJ, i.e., that the three cons&ants contracts haddirectly benefitkd JTPA participants by providing placement in jobs at specific businesseswhose development was aided by these consultants, is in accord with the mandates of the Actregarding the allowability of EGA costs. See R. D. and 0. at 6-9; 29 U.S.C. $ 1604(19);see also IX 7,8,9. As the costs of operating the physical plant for an incubator site are notat issue here, the question of whether such a center was formally established is largelyirrelevant y We therefore reject the Grant Officers challenge to the ALJs reversal of thedisallowance of $6,925 for the Baks/Balderas/Urbinacontracts under Finding 2 of the FinalDetermination.81

5

The Grant Officer also challenges the ALJs reversal of the disallowance of $2,500for a consultant contract with the University of Texas (UT).y Gr. Ofcr. Initial Brief at 21-22. The Grant Officer had disallowed the costs as EDA expenditures, as he determined thatthe focus of the contract was on a statistical analysis of transportation in the Middle RioGrande area, the flow of goods in and out. HT at 169-173. The ALJ determined thatthe contract results helped to establish a truck driving training program that providedtraining and created jobs for JTPA eligible individuals and participants. R. D. and 0. at13. In support of that conclusion, the ALJ stated that the Grant Officer was unaware of thetruck driving training program that was an offshoot of the research done under the UT

The Grant Officer testified that an incubator center provides assistance through sharedresources to developing businesses and that certain costs associated with the space and staff neededfor such a center could qualify as allowable EGA under the Act. HT at 238-42. Paul Edwards, theDeputy Executive Director for MRGDC, testified that his agency had worked on job creation and

job development in a manner that could, at some level, be defined as an incubator without walls,T. 506-07, 554-56, but he did not testify that an incubator center had been established. Edwardsdescription of an incubator center, i.e., a place where people come in with ideas for business,differs from the definition provided by the Grant Officer, a center . . . set up wherein a numberof businesses could be started, i.e. a start-up project for businesses and working in the center, theymay share various types of services, such as receptionist, secretarial types of services, accountingservices, . . . equipment, copy machines and so forth. HT at 238.

X In view of the foregoing disposition regarding the costs for the Bates/Balderas/Urbinacontracts, we need not address MRGDCscontention, MRGDC Brief at 19, that the Grant Officerfailed to properly raise an exception to the AWs finding in this regard in the Statement of Exceptions.

91 The total cost of the University of Texas contract was $5,000; the Grant Officer determined,after issuance of the Final Determination. that only one-half of that cost was expended from JTPAfunds. Gr. Ofcr. Initial Brief at 22 n.9: see R. D. and 0. at 13; HT at 169-73.


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contract when he-draftedthe Final Determination. Id. In challenging the ALJs conclusion,the Grant Officer argues that the ALJ erred in finding that the Grant Officer was unaware

of the truck driving training program and in relying on that factor in concluding that theGrant Officer had improperly disallowed the $2,500 as an EDA cost. Gr. Ofcr. Initial Brief at 21.

We agree with the Grant Officer that the AUs analysis regarding the UT contractis flawed. The purpose of the UT contract is much more broad-based and industry orientedthan, for example, the three consultants contracts discussed Supm, which aided in thedevelopment of specific businesses that provided employment positions for JTPAparticipants. As stated by the ALJ, the purpose of the UT contract was to explore jobopportunities. See IX 12. Like all economic development activity, the UT researchencompassed, to some degree, the exploration of job opportunities. As the Grant Officer

concluded, however, the focus was on the identification of products and industries rather thanon the creation of jobs for JTPA participants or eligible individuals. HI at 23 l-33, 345-46.We also agree with the Grant Officer that the ALJ improperly relied on the development of a truck driving program resulting from the UT contract research to conclude that the contractlead to the creation of jobs for JTPA participants or JTPA eligible individuals. Providingtraining with the intent of preparing participants to perform jobs is distinguishable from theactual creation of such jobs and, as indicated by the Grant Officer, training funds constitutea separate category of costs under the Act, which are not at issue under Finding 2 of theFinal Determination. See 20 C.F.R. 8 629.38(a); GX 1 at 19-21. We therefore agree withthe Grant Officer that TDOC and MRGDC did not demonstrate that the UT contract costsqualified as EGA under the Act and affirm the disallowance by the Grant Officer.

The Grant Officer also challenges the AIJs reversal of the Grant Officersdisallowance of costs associated with a contract between MRGDC and Japan Consultants,Ltd. (JCL), because, the Grant Officer urges, the AIJ relied on an inaccurate reading of theGrant Officers testimony regarding that contract. Gr. Ofcr. Initial Brief at 22. In response,MRGDC asserts that the ALJ correctly interpreted the Grant Officers testimony on thisissue. MRGDC Brief at 22-24.

The Grant Officer testified that he had concluded that the $8,444 for the JCL contractmust be disallowed as EDA expenditures based on his review of the contract, which providedthat JCL would assist MRGDC in preparing for a trip to Japan to meet with government andindustry representatives there and would act as liaison between the MRGDC and Japaneserepresentatives, but did not make any reference to job creation for JTPA participants. HTat 233-35; see IX 11. In determining that the JCL contract represented EGA, the ALJ reliedon the acknowledgments by the Grant Officer that certain of MRGDCsAsian Initiativecosts could qualify as EGA if jobs for JTPA participants or eligible individuals were actuallycreated as a result of such expenditures. R. D. and 0. at 14; see HT at 330-32 (Donahue).The ALJ then reiied on the testimony of PauI Edwards, Deputy Executive Director for


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MRGDC, to conclude that the Asian Initiative had resulted in the requisite c&&on of jobs. R. D. a& 0. at 14. Edwards testimony provides inadequate evidence that such was

the case, however. Edwards testified that a Japanese company had purchased a Middle RioGrandearea company that had hired JTPA eligible individuals; Edwardstestified that he wasunable to provide documentation on the hiring of the JTPA eligible individuals by thecompany because the company didnt want to do any business with the government . . . .to sign an OJT contract and have to tile reports and all of that sort of stuff. H I at 528,546. Edwards also stated that the company was one of the Japanese firms that we hadtalked to for a long time about various things. HT at 546. Contrary to the conclusionreached by the ALT, this testimony suggests only the most attenuated connection between theNovember 1990 trip to Japan that was the subject of the JCL contract and the creation of

jobs for JTPA participants or eligible individuals. Indeed, Edwards testimony indicates thatthe jobs were in existence prior to the purchase of the local company by the Japanese firm

and does not indicate that the entry of the Japanese f&m had any impact on the hiring of suchindividuals. We thus agree with the Grant Officer that the disallowance of $8,444 in costsfor the JCL contract was proper.

II. Costs disallowed by the Grant Officer underDetermination

Finding 3 of the Final

At issue before the ALJ were $7 19,567 in costs for EGA that the Grant Officerdetermined TDOC and MRGDC had improperly charged to the participant support costs(PSC) category? Of that amount, $628,115 remain at issue$ To qualify under the PSCcategory, expenditures must be for services which are necessary to enable an individual

eligible for training under [the JTPA], but who cannot afford to pay for such services, toparticipate in a training program funded under the Act. 29 U.S.C. 8 1503(24). The Actprovides that such services may include transportation, health care, . . . child care anddependent care, meals, temporary shelter, financial counseling, and other reasonableexpenses required for participation in the training program . . . . Id.; see 20 C.F.R. 8629.38(e)(4). As concluded by the ALJ, PSC costs are further defined by the fourcategories provided by Section 108(b)(2)(A) of the Act, 29 U.S.C. 6 1518(b)(2)(A). SeeOrder at 9-10 and authorities cited therein.

E l

The total amount of costs for EGA charged to the PSC category that was disallowed inFinding 3 of the Final Determination was $822,257; this amount was reduced prior to hearing bythe allowance of costs chargeable to the training category in the amount of $102,690. Gr. Ofcr.Initial Brief at 8 n.4; HT at 8: see R. D. and 0. at 15 n.12.

II Also under Finding 3 of the Final Determination, the ALJ reversed the Grant Officersdisallowance of EGA costs charged to the training costs category of Section 629.38(e)(l). R. D. and0. at 19-25. The Grant Officer does not chailenge this aspect of the AWs decision. Gr. Ofcr.Initial Brief at 9 n.5.


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The Grant Officer challenges the ALJs revekal of the d&lIowance of those costs ont he following grounds. The Grant Officer urges that the ALJ erred in allocating the parties

burdens. Gr. C&r. Initial Brief at 9-18; Reply Brief at 6-10. The Grant Officer also urgesthat, in the R. D. and O., the AJJ inexplicably reversed the interpretation that he had statedin the November 3, 1995 Order regarding the Section 108(b)(2)(A)limitation on the chargingof EGA c o s t s to the PSC category as well as his ding regarding the respective burdens of the parties in demonstrating compliance with that provision vel non. Gr. Ofcr. Initial Brief at 9-12; Reply Brief at 6-7. In response, TDOC and MRGDC urge that the AIJs analysisof the parties burdens was proper and that the interpretation of Section 108(b)(2)(A) setforth by the ALJ in the November 3, 1995 Order is not inconsistent with the ALJs allocationof the burdenson the parties in the R. D. and 0. TDOC Brief at 4-5; MRGDC Brief at 12-16. The respective parties also take opposing positions regarding whether the ALJ erred infinding that the Grant Officer failed to correct a faulty premise underlying the audit report

in drafting the Final Determination. Gr. Ofcr. Initial Brief at 18-l 9; Reply Brief at 6-7;TDOC Brief at 5-8; MRGDC Brief at 8-11.

Section 636.10(g)allocates the burdens of the parties in JTPA hearings before theOffice of Administrative Law Judges, as follows:

Burden of production. The Department shall have the burden of production to support the Grant Officers decision. To this end,the Grant Officer shall prepare and file an administrative file insupport of the decision. Thereafter, the party or parties seekingto overturn the Grant Officers decision shall have the burden of

persuasion.

20 C.F.R. 0 636.10(g) (1994).-? The ALJ summarized the Grant Officers burden as theestablishment of a prima facie case- 3 that TDOC violated JTPA regulations based onsubstantial evidence. R. D. and 0. at 5; accord State of Florida v. United States Dep t of

Labor, Case No. 92-JTP-17, Sec. Dec., Dec. 5, 1994, a rd 83 F.3d 435(table)(llth Cir.

p/ The hearing in this case was requested on April 12, 1994. GX 1 at 4. Section 636.10(g),as quoted supru, has been in effect since 1993. The ALJ cited its predecessor provision, which wasfound at 20 C.F.R. Q629,57(i). R. D. and 0. at 5. The two provisions are identical, except that

Secretary was referred to throughout Section 629.57(i) instead of Grant Officer.g/ The ALJ defined prim a facie case as relevant evidence sufficient to enable a reasonableperson to draw from it the inference sought to be established, quoting from McCormick, Evidence789-790 (2d ed. 1972). R. D. and 0. at 5. Although not noted by the AW. that definition was alsorelied on by the court in State ofMaine v . hired Stares Dep t of L abor, 669 F.2d 827. 830 (1st Cir.1982). which involved a grant officers final determination under the predecessor statute, theComprehensive Employment and Training Act of 1973. Pub. L. No. 93-203. 87 Stat. 839(1973)(repealed1978).


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1996). In construing the G&u Officers burden, the ALJ relied in part on the decision of the United States Supreme Court in Director, OWCP Y. Greenwich Collieries, 114 S.Ct.

2251 (1984). R. D. and 0. at 5, 18. Specifically, the ALJ ci t i

legislative history from theAdministrative Procedure Act (APA) that was quoted in Greenwich Collieries in support of the ALJs concern that the DOL could not permissibly presume that certain costs wreexpended in violation of the JTPA. R. D. and 0. at 5, 18-19. The ALJ then concluded thatthe Grant Officer had failed to establish a prima facie case of JTPA violations in support of the disallowance of EGA costs charged by the recipients to the PSC category based, in part,on the failure of the Grant Officer to rule out the possibility that such costs could, at leastin part, be allocated to the category of PSC. Id. at 18.

We agree with the Grant Officers contention, Gr. Ofcr. Initial Brief at 11-14; ReplyBrief at 9-10, that the ALJs reliance on Greenwich Collieries, which addresses a narrow

range of administrative law cases, was misplaced. The question before the Court inGreenwich Collieries was whether an employee/claimant could prevail over anemployer/respondent in a disability claim based on less than a preponderance of theevidence, i.e., when the conilictingevidence was in equipoise.4/ Greenwich Collieries, 114S.Ct. at 2252. Within that context, the Court emphasized the APA legislative historyindicating that a defending party shouid not be presumed by the government to have violatedthe law. Id. at 2258 (quoting S. Rep. No. 752, 79th Cong., 1st Session, 22 (1945)). TheCourt also construed the burden of proof which is placed by Section 7(c) of the APA, 5U.S.C. 0 556(d), on the proponent of a rule or order, unless otherwise provided bystatute, as the burden of persuasion. 114 S.Ct. at 2258. In contrast, the conflictingevidence on any particular issue involved in this case is clearly not in equipoise and the

Grant Officer did not presume that TDOC and MRGDC misspent JTPA funds; rather, thefindings presented in the Grant Officers Final Determination are based on an extensive anddetailed examination of relevant documents. See GX 1.

Moreover, the general rule regarding the burden of persuasion under Section 7(c) thatwas construed in Greenwich Collieries is inapplicable to this case, where the partiesrespective burdens are otherwise provided by statute. Section 165(a)(l) of the Actrequires grantees to keep records that are sufficient to permit the preparation of reportsrequired by this Act and to permit the tracing of funds to a level of expenditure adequate to

N f Greenw ich Collieries involved claims for benefits under the Black Lung Benefits Act, asamended, 30 U.S.C. 8 901 pf seq., and the Longshore and Harbor Workers Compensation Act, asamended, 33 U.S.C. Q901 ef seq., and the application by DOL of the true doubt rule to theseclaims. Under this rule. a finding by the ALI that the conflicting evidence was equally probativewas considered to give rise to true doubt which was to be resolved in favor of the claimant. TheCourt determined that this practice, which allowed the claimant to win when the parties evidencewas evenly balanced. was in conflict with Section 7(c) of the APA, which requires the successfulclaimants evidence to preponderate. 114 S.Ct. at 2259.


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Brief at 5-6. In -response, MRGDC asse& that .the ALJ properly concluded that tie-GrantOfficers analysis and methodology were flawed. MRGDC Brief at 12-19.

We agree with the Grant Officer that the ALJ misallocated t he parties burdens byrequiring the Grant Officer to rule out the possibility that the EGA costs at issue couldqualify as expenditures for participant support services. Although we agree with the ALJsdetailed analysis of the restrictions imposed on the charging of EGA expenditures to theparticipant support costs category by the Act, see Order at 7-10, we disagree with hisconclusion regarding the evidence necessary to prove a failure to comply with thoserestrictions. As noted by the AIJ, Order at 8, the Act indicates t ha t participant support costsare those that directly benefit eligible individuals by assisting in their participation in theJTPA training program. See 29 U.S.C. 00 1503(24), 1518(b)(2)(A); see also 20 C.F.R. 8629.38(e)(5). For the purpose of establishing a prima facie violation of the Act underSection 108(b)(2)(A),it was sufficient for the Grant Officer to explicate the four types of participant support delineated in that statutory provision and to explain why he had concludedthat the costs charged by TDOC and MRGDC to the PSC category did not fall within oneof the four types of participant support. Cf: State of Florida, slip op. at 4-12 . The GrantOfficer accomplished this task by testifying that TDOC and MRGDC had not provided thedocumentation necessary to demonstrate that the costs at issue directly benefitted specificJTPA participants or eligible individuals by assisting them in participating in training underthe Act. HT at 25 l-53, 275, 365; see GX 1 at 17. The issue of whether the EGA costs atissue could possibly qualify as an exception to the general rule that EGA costs do notconstitute expenditures for participant support services was raised by TDOC and MRGDCas a defense against the case presented by the Grant Officer. Consequently, TDOC andMRGDC bore the burden of establishing, if possible, that such costs were chargeable to thePSC category because the expenditures directly benefitted specific JTPA participants oreligible individuals. Cf Quechan Indian Tribe, 723 F.2d at 736 ; First N a t ? Bank of Bellaire v. Comptroller of the Currency, 697 F.2d 674, 683 (5th Cir. 1983).m Theplacement of this burden on the grant recipients is consistent with the well-establishedevident&y principle that the burden of establishing a fact should be placed on the partyhaving knowledge of the fact and that the opposing party should not be required to establish

u1 In Quechan Indian Tribe, the court concluded that the Secretary had established a violationof statutory restrictions on expenditures by a CETA grantee; the court concluded that the granteespent grant funds on programs for which they were intended but failed to meet its burden of proving that certain specified administrative expenditures were made in furtherance of the grantspurposes. and also that program participants met the conditionof eligibility. 733 F.2d at 736.In Firs-r N a t 7 Bank of Be/Zaire , t he court relied on the provision at Section 7(c) of the APA that theproponent of a rule or order has the burden of proof to conclude that, although the Comptroller borethe burden to establish a violation of the lending limitations provided in 12 U.S.C. P 84, the bank bore the burden of establishing that the exception to lending limitations provided by Section 84(13)was applicable. 697 F.2d at 683.


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a negative. See McCormick, ELideme 0 336 (4th ed. 1992); 4 Wigmore, Evidence $2486 (3d ed. 1940).

The ALJ had indicated in the Order that TDOC and MRGDC would be provided anopportunity at hearing to prove that the EGA costs at issue qualified as PSC.x Order at 12.TDOC and MRGDC thus were provided an adequate opportunity to provide documentation

in support of this defense. Nonetheless, as stated by the ALJ at hearing, the record doesnot contain documentation adequate to establish that the EGA costs at issue qualify as PSCunder Section 108(b)(2)(A). HI at 577; see HT at 251-53, 27% 365 (Donahue), 462-63(hkutinez); GX 1 at 17; see also R. D. and 0. at 18; Gr. Ofcr. Initial Brief at 14, 23-24;MRGDC Brief at 24.

Lastly, we also agree that the ALJ erred in finding, in the R. D. and 0. at 17-18, that

the Grant Officer had failed to correct the faulty premise relied on by the auditor regardingthe potential for EGA costs to qualify as PSC. As initially concluded by the ALJ, in theOrder at 18-19, the Grant Officers testimony indicates that in drafting the FinalDetermination he was mindful of the possibility that EGA expenditures, in very unusualcircumstances, may be allocated as expenditures for participant support. HT at 311-15.Furthermore, inasmuch as speczjk, iden tz~k JTPA participants or eligible individuals mustbe directly benefitted by such EGA costs in order for the costs to qualify under the PSCcategory, it is clear that none of the employment generating activities that were testifiedabout at hearing and which are referenced in the evidence of record could qualify under thePSC categ0ry.G See R. D. and 0. at 15-18. Thus, any error in the Grant Officers failureto specificallyanalyze each of the EGA at issue under the PSC requirement is harmless. See

I_al We reject the Grant Officers contention that the ALI ruled, in the November 3, 1995 Order,that the Grant Officer had established a prima facie case. Gr. Ofcr. Initial Brief at 17. As urgedby TDOC and MRGDC, TDOC Brief at 4-5; MRGDC Brief at 12, the ALJ ruled only on thequestion of law before him regarding the interpretation of Section 108(b)(2)(A) of the Act as itpertained to evidence that would support aprimafacie case of noncompliance with the JTPA. Order3t 12.

E / The Grant Officer points out. Reply Brief at 2-3, that MRGDC attempts to confuse the issuesat hand regarding the disallowance of EGA costs charged to the participant support category. by thegrant recipients with the question of whether the EGA would otherwise qualify as an allowable costunder the administrative costs category. MRGDC Brief at 3-l 1. As indicated supra, expendituresfor activities that directly result in the placement of JTPA eligible individuals and participants into

jobs. see R. D. and 0. at 6-7 (citing JTPA Conf. Rep. No. 97-889, Sept. 28, 1982 and 20 C.F.R.5 629.37(a)) qualify as allowable EGA costs under the administrative costs category, subject to thefifteen percent cap. To be chargeable to the participant support costs category, on which there isno percentage cap, however, expenditures that would otherwise be considered EGA costs must beshown to have directly benefitted specific. identifiable JTPA participants or eligible individuals.Order at 7-10 and authorities cited therein.


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HT at 96-98 (Williams, addiessing h4RGDC responses to audit-report, GX 1 at 172). Wetherefore reject the ALJs conclusion in this regard and afl%rn the Grant Officers

disallowance of EGA costs charged to the participant support services category under Finding3 of the Final Determination.

O R D E R

Accordingly, the ALJs decision to reverSe the disallowance of costs under Finding2 of the Grant Officers Final Determination is reversed in part and affirmed in part and theALJs decision to reverse the disallowance of costs under Finding 3 is reversed in itsentirety. The Texas Department of Commercefiis ORDERED to pay to the United StatesDepartment of Labor $628,1 15.9 The Grant Officer shall be guided as to the appropriatemethod of repayment by the State pursuant to Section 164(d) of th e Act and 20 C.F.R. $

629.44.SO ORDERED.

w 4vP-LDAVID A. OBRIENChair

/ra&kateMember

I*; The TDOC has been renamed the Texas Workforce Commission since the initiation of thisadjudication. See TDOC Brief: Gr. Ofcr. Reply Brief at 4 n.3.

2 As indicated .sup~uat n. 5. the costs at issue under Finding 2 of the Final Determination werealso at issue under Finding 3. We have agreed with the Grant Officer that the $628,115 in EGAcosts that were at issue in Finding 3 should be disallowed: of those costs. we have also agreed thatthe S2.500 UT contract and the $3.444 JCL contract should also be disallowed on the additional basisthat those costs do not qualify as EGA. as concluded by the Grant Officer under Finding 2.


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CaseName : State of Texas Department of Commerce and Middle RioGram& Development Council v. United StatesD e p a m n t of L.&or

ARB Case No. : 96-128

AU Case No. : 94-JTP-20

Documen t : Final Decision and Order

A copy of the above-referenced document was sent to the following

persons on DE C I I I S &B .

CERTIFIED MAIL

Se&a Johnson, Esq.Margo M. Kaiser, Esq.State of Texas, Dept. of Corn.P.O. Box 12728Austin, TX 78711-2728

Jeffrey C. Londa,Esq.G. Mark Jordan, Esq.Hutcheson & Grundy, L.L.P.1200 Smith St., Suite 3300Houston, TX 77002-4579

HAND DELIVERED

Associate Solicitor for Employment& Training Legal Services

Attn: Annaliese Impink,Esq.Office of the SolicitorU.S. DOL, Suite 2102200 Constitution Ave., NWWashington, DC 202 10


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REGULAR MAIL

Brian KeiltyGrant/Contract OfficerU.S. Department of Labor, ETA200 Constitution Ave., NWRoom N-4716Washington, DC 20210

Edward A. TomchickOffice of Grants & Contracts Mgmt.U.S. Department of Labor200 Constitution Ave., NWRoom N-471 6Washington, DC 20210

Edward J. DonahueGrant OfficerU.S. Department of Labor, ETA200 Constitution Ave., NWRoom N-4716Washington, DC 202 10

James Saunders, Esq.Saunders & Beck 2318 San Pedro, Suite 4San Antonio, TX 78212

Deborah C. KastrinExecutive DirectorState of Texas, Dept. of Corn.P.O. Box 12728Austin, TX 7871 l-2728

1Mr.Paul EdwardsInterim Executive DirectorMiddle Rio Grande Development

CouncilP.O. Box 1199Carrizo Springs, TX 78834


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Hon. John M. VittoneActing Chief Administrative Law JudgeOffice of Administrative Law Judges800 K Street, NWSuite 400Washington, DC 20001-8002

Hon. James W. Kerr, Jr.Administrative Law JudgeOffice of Administrative Law JudgesHeritage Plaza, Suite 530111 Veterans Memorial Blvd.Metairie, LA 70005

Charles A. Wood, Jr.Office of Debt ManagementU.S. Department of Labor200 Constitution Ave., NWRoom N-4716Washington, DC 20210

James E. WhiteRegional SolicitorU.S. Department of Labor525 Griffin StreetSuite 501Dallas, TX 75202

Department of Labor: 95990009

Documents

Transcript of Department of Labor: 95990009